What’s causing the foreclosure crisis? Is it the correction in home prices across the US from bubble-induced highs or is it, as many claim, a result of lax lending standards and predatory subprime loans?

The distinction isn’t just splitting hairs. Governors of the Federal Reserve and other policy makers have put quite a bit of effort into blaming failures of mortgage regulation (rather than market failures) for the crisis. But are no-income McMansion moms really the ones feeding the foreclosures? Or are otherwise credit-worthy homebuyers defaulting as they realise they owe hundreds of thousands more than their home is worth? After all – I can afford to pay back a loan of $500, but if I’ve used it to buy a tulip bulb that’s now worth $1.50, I might just decide to cut my losses and give it to the bank to garden.

Crunching the numbers leads to some interesting, if inconclusive, results. Read more

No change in the Fed funds rate. And no change in the extended period language. But, lest readers begin seeing monthly Fed funds meetings as uneventful, there has been a relatively interesting change in the Fed’s view of financial conditions.

Charles Plosser, president of the Philadelphia Fed, today gave a quite interesting speech on developing regulation to address too-big-to-fail financial institutions. His comments (well worth a read) on the Squam Lake Group’s recommendations (also worth a read) come after a lull in the too-big-to-fail discussion. A few months back, living wills, robust resolution mechanisms, and early intervention were at the forefront of the public policy debate. But as the european debt crisis has captured headlines, officials have been quieter on their plans to address the TBTF problem (until today’s conference), with the notable exception of St Louis Fed president James Bullard, who’s been explicitly stating the implicit guarantee still holds. Read more

Moody’s just slashed Greece’s rating to Ba1 from A3, a whopping four notches, bringing the ratings agency in line with its peers and the country’s debt squarely into junk territory. Moody’s, along with Standard and Poor’s and Fitch, had already downgraded the debt-laden nation in April, but by fewer notches.

From the release:

Moody’s Investors Service has today downgraded Greece’s government bond ratings by four notches to Ba1 from A3, reflecting its view of the country’s medium-term credit fundamentals.
Today’s rating action concludes the review for possible downgrade, which Moody’s initiated on 22 April 2010. Moody’s has also downgraded Greece’s short-term issuer rating to Not-Prime from Prime-1. Greece’s country ceilings for bonds and bank deposits are unaffected by the review and remain at Aaa (in line with the Eurozone’s rating). The outlook on all ratings is stable.

Vice Chairman Donald L. Kohn announced on Friday that, at the request of Federal Reserve Chairman Ben S. Bernanke, he plans to remain on the Board until a new Governor is appointed but to leave no later than September 1. He had announced in March that he intended to resign at the expiration of his term as Vice Chairman on June 23, 2010. While he remains on the Board as a Governor, he will continue to participate in all Board and Federal Open Market Committee meetings.

Janet Yellen, now San Francisco Fed president, was nominated by President Barack Obama back in April to fill the soon-to-be vacant slot, but so far, there have been few visible moves to get the Senate confirmation process in motion – and Republicans have been actively obstructionist in confirming Obama picks to any government post. Read more

The Beige book backs Bernanke. The economy’s improving, albeit modestly, according to the aggregation of anecdotal evidence of economic activity in the 12 Federal Reserve districts. No big shockers in the report, but a few interesting items:

BP spill. Tourism’s up almost across the board, but the oil spill may be a drag. Atlanta reported “that the Gulf oil spill and Tennessee floods had already resulted in some vacation lodging cancellations. The potential exists for a much greater impact, although contacts are quite uncertain as to the ultimate effects.”

Today’s jobs numbers, which showed only 41,000 private sector jobs gained, were a disappointment. And where there are disappointments, there are losers. But where there are gains, there are winners! So, without further ado, this month’s list of job market winners and losers.

Well that was disappointing. The private sector in the US added only 41,000 jobs in May, compared with a 218,000 gain in April, and well below economists expectations.

But, hey, gains are gains. And among those over 25, the only group for whom the unemployment rate fell were people with who had at least a bachelor’s degree. Which implies that at least some of the gains were among high-wage job seekers (or, if you like, the working rich).

So where are people who earn over $100,000 getting jobs? According to a survey from TheLadders.com, a job searching service for high-income professionals, the five cities with the strongest job markets were Seattle, San Francisco, San Diego, Washington DC and Boston. The top sectors, the group says, were aerospace and defence, biotech, e-commerce, engineering, financial services, IT and software. Read more

Thomas Hoenig, president of the Kansas Fed, fully spread his hawkish wings today. In a speech titled “the high cost of exceptionally low rates,” he called for the Federal Reserve to raise rates to 1 per cent from near zero by the end of the summer.

I have no illusions about the challenges of moving away from zero. But in my judgment, the process should begin sooner to avoid the danger of having to over compensate later, as so often happens in policy.

Dennis Lockhart, president of the Atlanta Fed, didn’t go as far as Mr Hoenig, but took a step toward signaling he would be willing to consider removing the Fed’s “extended period” pledge. “The time is approaching when it will be appropriate to consider recalibrating interest rate policy,” he said, but he did not think that “that time has yet arrived.”

So is the committee becoming more hawkish or are the hawks flying away from the committee? Read more

Ahead of the past few US nonfarm payroll reports (here, here and here), I’ve made a big deal about revisions to the headline numbers in the months (and years) after they’re initially reported. When the economy was getting worse, the Bureau of Labor Statistics massively underestimated the size of the losses in their first jobs reading (for several months revisions exceeded 100,000). Now that the market appears to be improving, the BLS seems to be underestimating the gains.

Q: What do jitters over European debt, stubbornly high unemployment and earthquakes have in common?

A: They have all been cited as reasons for central banks to delay interest rate hikes.

It’s not just economic crises that cause central banks to postpone tightening monetary policy. Since the beginning of the year, a number of political and natural disasters have pressured banks to keep rates low. Here is Money Supply’s list of the top three non-financial events that kept rates low. Are we missing any? Comments welcomed below. Read more

2:05 pm: It’s over. After a discussion about rating state and municipal securities (Buffett wit #68 “If the federal government will step in to protect the security, I’d rate it triple A, if not, I don’t know what it should be rated.”) the meeting wraps up. The third hearing will begin at 2:30. No live blog for the next session, alas, but you can watch it here. Read more

The US will have one major advantage before it starts using its term deposit facility in earnest. It gets to see how effectively a similar facility mops up excess liquidity in Europe.

Tomorrow, the ECB will look to attract €35bn to be deposited for one week for an interest rate of up to 1 per cent. The move comes as the eurozone’s central bank looks to reduce the inflationary pressures that could be created by its recent bond purchases. Read more

That’s the question everyone’s asking today about BP’s latest effort to stem the tide of oil gushing into the Gulf of Mexico. But it could just as appropriately be asked of the progress of the US HIRE Act, past in March, which gives employers tax credits of up to $1,000 per worker and provides a payroll tax exemption for employer social security payments. Read more

The Money Supply team

Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Claire Jones is the FT's Eurozone economy correspondent, based in Frankfurt. Prior to this, she was an economics reporter in London. Before joining the Financial Times, she was the editor of the Central Banking journal. Claire studied philosophy and economics at the London School of Economics. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Sarah O’Connor is the FT’s economics correspondent in London. Before that, she was a Lex writer, covered the US economy from Washington and the Icelandic banking collapse from Reykjavik. Sarah studied Social and Political Sciences at Cambridge University and joined the FT in 2007. RSS

Ferdinando Giugliano is the FT's global economy news editor, based in London. Ferdinando holds a doctorate in economics from Oxford University, where he was also a lecturer, and has worked as a consultant for the Bank of Italy, the Economist Intelligence Unit and Oxera. He joined the FT in 2011 as a leader writer. RSS

Emily Cadman is an economics reporter at the FT, based in London. Prior to this, she worked as a data journalist and was head of interactive news at the Financial Times. She joined the FT in 2010, after working as a web editor at a variety of news organisations.
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Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS

Ben McLannahan covers markets and economics for the FT from Tokyo, and before that he wrote Lex notes from London and Hong Kong. He studied English at Cambridge University and joined the FT in 2007, after stints at the Economist Group and Institutional Investor. RSS